Are you ready to shop for bargains, but not sure how to tell the difference between ‘bottomed out’ and ‘down and out’?
We dig deep into the numbers and identify a couple of key suburbs to watch across the country, where strong fundamentals point to real strong returns for investors looking to pounce on an undervalued market.
We look at two different price brackets (under $300k and $300k-$500k) and pull out key suburbs to watch in each. We are looking for suburbs that have good fundamental indicators for growth but have come off a bit in price as buyer confidence lagged across the market.
We have identified a solid group of strong contenders that show signs of heading back to positive growth due to good fundamental indicators like shrinking stock, growing demand, rising rental yields and positive demographic trends.
The suburbs outlined here are out ‘best at the bottom’ that present solid opportunities for investors to harness some top returns.
GATESHEAD, NSW (HOUSES)
Median price: $273,000
Vendor discounting rate: 7%
Reason:
Uncertainty about the market caused a slight dip in the market in 2011 even causing a slight slowdown in an otherwise robust Hunter market.
Kickers:
- 20 minutes to downtown Newcastle
- Greater Hunter Valley region undergoing massive resource boom
- Affordable, yet beach close
- Hospital facility in town draws renters
- Low vacancy rates at just 0.71%
- Strong yield at 6.28%
Signs of a rebound:
The suburb has been racking up around 10% average annual growth over the past 10 years; however growth over the past 3-5 years has been well below that. There are now signs that the property market is on a rebound.
Sales activity has started picking up over the past three months and already surpassed the volume of transactions during the same period last year, resulting in a modest increase in house price during that time. Its affordability is a big draw to families who are priced out in the neighbouring suburbs such as Charlestown where median house price sits at around $390,000.
Gateshead is one of the few suburbs in the Newcastle region where you can count on finding a house for under $300,000. It is just 6km to the beaches at legendary surf spot Redhead and a quick commute into Newcastle. That is moving the area up on the lists of first time home buyers especially, says local agent Damon Ellis.
“You’re seeing a lot more activity there recently,” he says. “For example, I’ve got a couple who are looking at buying in Gateshead at the moment and they’re relocating from Queensland and their main things are affordability and being close to the beach. Redhead has recently become one of his favourite surfing spots.”
Ellis says investors are also starting to take notice of Gateshead, which boasts strong rental yields of above 6% and a tightening rental market. The expanding Lake Macquarie Private Hospital means investors can count on a good pool of medical professionals looking for rental housing.
Best street(s): Goundry Street: A broad street with good access and several charming brick homes.
LAKEMBA, NSW (UNITS)
Median price: $250,050
Vendor discounting rate: 7%
Reason:
Recent growth slowed in 2011 with the rest of the Sydney area, though it is still posting better returns than the local average.
Kickers:
- Good transport links to CBD
- Good amenities
- Affordability
- Strong rental yields
- Rising rents
Signs of a rebound:
Sales activity ramped up significantly during the past three months with the number of sales transaction rising by 20% compared to the same period last year according to Residex. Median rents for units also jumped solidly, up $40 per week to $340 compared to a year ago. Recent quarterly growth of 4% and annual growth of 8% are slightly lower than 2011 and 2010 when unit price rose 12% and 15% respectively, which means the current level offer a significant discount for savvy investors looking to buy into the area.
The rising rents now again appear to be pushing some renters into buyers, says local agent Lee Knapton of Knapton and Co. Real Estate. “Investors certainly haven’t gone anywhere especially with the rental yields the way they are.” Gross yields above 6% are very common with a 2 bedroom apartment renting for as much as $400 per week.
Best street(s): Surrounding Wangee Road: Good access to trains and amenities, with a good mix of units and houses.
ROCKLEA, QLD (HOUSES)
Median price: $280,000
Vendor discounting rate: 23%
Reason:
Major flooding in early 2011 severely impacted this community, and local real estate prices were impacted by a number of damaged homes coming on the market.
Kickers:
- Only 9km from Brisbane CBD
- Good access to transport, shopping
- Affordable compared to surrounding suburbs
- Strong rental yields
Signs of a rebound:
More than a year after the flood waters receded, Rocklea appears poised for a real estate recovery as strong rental yields and good demand are bringing investors back into the market. Rocklea was one of the worst hit areas in the 2011 flooding, and last year the area recorded a massive 22% drop in prices as a good deal of damaged homes came on the market. However, there are signs that the market is finally stabilising after these hefty falls with RP Data recording a steady market in the past three months compared to a 6% drop in the previous quarter.
Local Ray White real estate agent Diane Sims does not want to talk about the floods, but she can’t help but bring it up on her own. “We were all affected,” she says, “and we’re still getting over it, but now things are finally starting to turn.”
“For it being only 9km from the CBD, it’s priced exceptionally well. It also has transport, trains, buses and it’s close to the university.
“But the big draw is that it’s close to the CBD and extremely affordable.”
The recent big drop in prices may scare off some investors, but rents have stayed very strong, pushing yields above 6%.
Best street(s): Bale Street: One of several older, more established streets in the southwest part of the suburb.
INALA, QLD (HOUSES)
Median price: $290,000
Average vendor discount: 10%
Reason:
Prices dropped across the Brisbane area over the last year since 2011’s flooding, and Inala’s market suffered as a result.
Kickers:
- 25 minutes to Brisbane CBD
- Good local shopping, restaurants
- Affordability
- Low vacancy rate
Signs of a rebound:
Inala’s market suffered along with the rest of the region in the wake of the 2011 floods, but strong fundamentals and increased buyer confidence point to an up year for this up and coming suburb.
Median price have stabilised in the last three months after falling 1.69% in the previous quarter. Growth have been sluggish over the past 3 years, which however, the suburb’s average annual growth of 15% means there is a strong potential for this suburb to grow strongly in the near term. Rents have risen by 3% over the past 12 months as vacancy rate shrink to 0.93%.
The suburb is a hotspot for young families looking for value with access to the CBD. A new train station at nearby Richlands opened in 2010, making the 30 minute trip to Brisbane a lot easier. Estate agent Isaac Nguyen with All Properties Group says he has definitely seen more interest from young families in Inala in recent months, as the dip in prices seemed to turn some renters into buyers. “It’s one of the few suburbs in the Brisbane area where you can get a house in good shape under $300,000, and first time homebuyers especially seem to be knocking on the door.”
Nguyen also points to a wave of recent renovations in the area as a sign that the area is on the way up. Investors have also been eyeing Inala as rents held form through the downturn pushing yields back to above 5%.
Best Street(s): Goldfinch St: This long, broad street boasts a number of well-maintained homes with striking front gardens, along with good access to parkland and shops.
CAMBELLTOWN, SA (Units)
Median price: $290,000
Discounts: About $10,000
Reason:
The entire region shed just a hair under 5% off median prices in 2011, on fears about the global economy impacting the areas resources boom.
Kickers:
- Only 20 minutes to Adelaide CBD
- Desirable suburb
- Strong demand
- Low housing supply
- Low vacancy rate
- Rising rent
Signs of a rebound:
This leafy suburb about 10km northeast of central Adelaide trended down over the past year, but the suburb appears to be recovering as confidence returns to the wider Adelaide market.
The volume of sales transaction has almost doubled over the past 12 months, indicating recovery in demand is well underway. Rents are also rising strongly- up $40 dollars per week compared to a year ago according to Residex.
While prices have come off since 2010, the market looks to be settling in Campbelltown especially for units, which are moving off the market in a fairly brisk 38 days on average.
Local agent Frank Carlesso says the good price point especially in the unit market makes Campelltown especially attractive to first-time homebuyers. “It is just one of those really quaint entry level spots to get into the market. You may also have some investors because of the high rental yields. But we find we sell a lot to first homebuyers.”
Carlesso says one of the big draws for young families is the good access to parklands and open spaces, but just a short drive in to Adelaide.
Best Street(s): Greenglade Dr: This long, quiet street marks the border of Linear Park and boasts a number of larger homes with well-maintained flower gardens.
NEWCOMB, VIC (Houses)
Median price: $275,000
Discounts: About $16,000
Reason:
Sellers became overly ambitious following the large gains in the Southern Victoria market and economic worries helped bring the market to a halt in 2011.
Kickers:
- 5 minutes to Geelong CBD
- Good local shopping, restaurants
- Affordability
- Good coastal access
Signs of bottoming:
Strong demand from both investors and first time homebuyers moving back into the market at the low end looking for good value and rental yields.
Newcomb sits just 3 km from downtown Geelong and next door to much pricier East Geelong, which has pockets of $700,000 homes. The area took a dip with the rest southern Victoria, but the Geelong suburbs have in general fared much better than Melbourne through the downturn.
While Newcomb went flat over 2011, much of Melbourne went deep into negative territory over fears that the market had overheated. Those fears seem to have steered clear of Newcomb, where growth was substantial over the past 5 years at above 40%, but nowhere near the numbers posted in many of Melbourne’s comparable suburbs.
Location is the big, big draw in Newcomb as a typical ride to the city on public transport will take you just 5 minutes, yet residents also have access to the parks, farmland and open spaces to the east of the city.
Local real estate agent Donna Ellmer-Buckingham says buyers are coming back and looking to be city close, at a nice price.
“You know they are first home buyers that have been priced out of East Geelong, where you are looking at spending at least $400,000 plus,” she says. “So you know it’s definitely a good alternative.”
Best Street(s): Poplar St: A long block of older, well established homes tuck in a residential quieter residential area, but still featuring great access to Geelong and beaches to the south.
